CPUC's Bilas: Capacity 'Hoarding' Takes Toll on Retail Competition

Retail gas unbundling in California is "currently being undermined" by Dynegy Marketing and Trade's withholding of a significant portion of firm transportation capacity on El Paso Natural Gas from the market, the head of the California Public Utilities Commission (CPUC) said last week. As a remedy, CPUC President Richard A. Bilas called on FERC to implement regulations prohibiting the "hoarding" of pipeline capacity and to investigate allegations of anticompetitive conduct, which he contends was evident in the Dynegy-El Paso arrangement.

He flatly accused Dynegy of "hoarding" the 1.3 Bcf/d of turned-back capacity that it acquired from El Paso more than a year ago, saying that the Houston-based marketer's action was directly responsible for the 17-cent increase in the basis differential between San Juan Basin prices and California border prices during 1998.

"I don't use the word 'hoarding' lightly. [But] Dynegy has controlled this 1.3 Bcf/d for more than 13 months, and even though there have been significant periods of time when Dynegy did not use a substantial amount of this capacity, [it] has never yet released any portion of its capacity to another marketer or shipper," he told a Federal Energy Regulatory Commission conference last Thursday set up to explore the relationship between federal and state regulation of the gas industry.

(At one point Dynegy [NGC Corp.] did offer to release various amounts of the capacity over different time periods, but received no bids on it. Some marketers said the prices set were too high. [See NGI, April 13, 1998])

The Dynegy-El Paso contract, Bilas said, has taken its toll on retail competition in the state because it has put transportation capacity that was formerly held by LDCs into the hands of a single marketer. "How in the world is competition enhanced if the LDCs' role in the procurement of natural gas...is being replaced in large part by one marketer?" he asked. "There's no benefit to ratepayers in switching from regulated monopolies (LDCs) to unregulated monopolies (marketers) as the suppliers of natural gas."

Bilas believes that the Dynegy-El Paso contract is a good argument against the removal of the price cap on released capacity, which FERC has proposed in its mega-notice of proposed rulemaking (NOPR). "Unless and until the FERC can effectively prevent the withholding of capacity like Dynegy has done, [it] should not consider removal of any rate cap."

Separately, Bilas asked the Commission to require bypassing pipelines to collect a surcharge for public-purpose programs - which offer assistance to low-income ratepayers and promote energy efficiency - from customers in the states where costs for these programs would be otherwise stranded. While LDCs in California are required to recover costs for such programs in their rates, the state can't force a jurisdictional bypassing pipeline to do the same, he noted.

Requiring such a surcharge "would level the playing field between LDCs and bypassing pipelines, prevent uneconomic bypass which might otherwise occur and help fund worthy programs," Bilas said.

He noted that his request was not without precedent. In Order 888, "FERC generally left the [the issue of] recovery of such stranded costs and benefits resulting from retail wheeling to the state commissions," but in limited circumstances where state commissions don't have the authority to collect stranded costs, "you stated...that you would permit a customer-specific surcharge to be added to the interstate transmission rate but only for the customers in the state where the stranded cost occurred." This is "precisely what we ask the FERC to require in the context of bypassing pipelines..."

Commissioner Ruth K. Kretschmer of the Illinois Commerce Commission said that while she welcomed pipelines to her state - "in fact, the more pipelines that come to Illinois the better..." - she had problems with FERC's policy on rate treatment (rolled in vs. incremental) for new pipe projects. "I know this issue was supposedly resolved" in 1994, but "I never agreed with that policy. I don't like the 5% threshold that permits rolling in new pipeline costs." For one thing, she said the threshold is too high. Plus, she noted, pipelines have found a way to circumvent the standard - they are segmenting their large projects into smaller ones in order to qualify for the rolled-in rate treatment.

Commissioner John M. Quain of the Pennsylvania Public Utility Commission addressed the issue of LDC waivers of certain federal regulations - such as capacity release and shipper-must-have-title rules - to facilitate retail unbundling efforts at the state level. He believes the Commission should respond to such waiver requests on a case-by-case basis. Although this would put more "stress" on FERC, it would be preferable to a generic approach, Quain told FERC commissioners. He further suggested that FERC establish a state advisory board to the Commission to better coordinate federal-state regulatory efforts in the gas industry.

Susan Parker

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